What is Bollinger Bands

Bollinger Bands.

Bollinger Bands are a technical analysis tool used by traders to assess the volatility and potential price movements of a financial instrument, such as a stock or a cryptocurrency. They consist of three lines:

1. The middle band, which is typically a simple moving average (SMA) of the asset’s price over a specified period.
2. The upper band, which is usually set at a certain number of standard deviations above the middle band.
3. The lower band, set at a certain number of standard deviations below the middle band.

The distance between the upper and lower bands represents volatility. When the price approaches the upper band, it may indicate overbought conditions, suggesting a potential reversal or a price correction. Conversely, when the price approaches the lower band, it may suggest oversold conditions, potentially signaling a buying opportunity.

Traders use Bollinger Bands in conjunction with other technical indicators and analysis methods to make informed trading decisions. The choice of parameters, such as the length of the moving average and the number of standard deviations, can be adjusted to suit the specific asset and trading strategy.


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